COOL Cometh & Plenty Of Questions Linger

If there’s one thing for sure regarding the industry’s move into mandatory country

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If there’s one thing for sure regarding the industry’s move into mandatory country of origin labeling, it’s that nothing’s for sure.

And that, sources tell BEEF magazine, creates uncertainty that has the marketing chain from retailers on down nervously waiting to see what develops.

Some retailers are not fully compliant yet, a retail source tells BEEF, because they’re not sure how to be. “The problem is we’re not just waiting on one shoe to drop. There are probably several shoes yet to fall.” The questions include: How different will the final rule be from the interim rule? How will USDA enforce COOL once they get past the six-month “informed compliance” period?

Answers may soon be forthcoming. USDA’s Craig Morris, speaking at BEEF magazine’s BEEF Quality Summit (BQS) in Colorado Springs earlier this month, said USDA in mid-November began circulating a draft of the final rule within USDA. Morris, deputy administrator of USDA’s Ag Marketing Service, told cattlemen that USDA is aiming to send the final rule to the Federal Register on Dec. 24.

Whether that makes for a merry Christmas remains to be seen, but retailers aren’t holding their breath. “It’s extremely difficult for us to manage COOL,” says Kelly Mortensen, corporate meat, deli and seafood director with Associated Food Stores in Salt Lake City, UT. Mortensen, who spoke on a BQS retail panel, says they handle nine different beef lines, including several branded programs. He’s concerned that COOL will add more categories to the retail line-up.

COOL dictates four categories – Category A, which is beef born, raised and slaughtered in the U.S.; category B, multiple countries of origin for beef from cattle raised elsewhere but fed and slaughtered here; category C, cattle imported to the U.S. for immediate slaughter; and category D, which is imported meat.

“If we have to add more categories, like A, B, C or D, one of those (existing) categories will have to go. Or two or three, in order for us to keep our coolers from overflowing.” That means COOL-labeled meat could become a competitor to existing branded-beef lines, if for no other reason than allocating a limited amount of shelf space. “We could have three categories (of COOL) in our meat cases in our stores,” he says. “And you can’t commingle those categories. They have to be in a separate section.”

A brief history. COOL was first dictated in the 2002 farm bill. Through a series of legislative maneuvers, the program for most of the covered commodities was set aside. COOL for fish and shellfish was implemented in 2005 and USDA has been enforcing that program for three years.

The 2008 farm bill changed things, and COOL for a number of commodities, including beef, became effective Sept. 30. Adding the other commodities, each with its own unique supply chains, complicated the issue. So USDA declared the first six months a period of “informed compliance.” Beginning April 1, 2009, USDA will begin enforcing COOL, which can result in fines up to $1,000/violation.

That enforcement will be through retail and supplier audits, Morris says. This fiscal year, USDA will conduct around 2,000 retail audits on fish and shellfish. With the additional commodities, USDA has made a budget request to increase audits to 5,000/year. “For all the retail reviews we do, we do tracebacks on approximately 2% of those,” which means USDA will be asking packers to prove the origin of the products sold at retail.

What this means to cattlemen. So will a USDA inspector show up at your door, asking you to prove the statements you made on the affidavit when you sold your calves? No, Morris says.

“I don’t regulate you, I regulate packers,” he told the BQS crowd. “We cannot, under this law, ever assess a penalty on a beef producer.” So, if an audit reveals a producer falsified the affidavit on a set of cattle, the packer is on his own to resolve the problem.

But cattlemen still have COOL obligations. While industry-wide affidavits have simplified the requirements, documentation is still needed.

“Additional to the universal affidavit, there has to be information that is unique to the transaction,” says Marty O’Connor, chief of the Ag Marketing Service’s Standardization Branch. “So those normal business documents that are communicated still have to contain COOL information that can be traced back through the supply chain.” Normal business documents are acceptable. “Bills of lading, invoices or whatever else is used as long as it can tie that product and that shipment uniquely from that seller to the next person in the supply chain.”

Then there’s cost. How much of the additional costs that retailers and packers will assume will be passed back to cattlemen? Nobody knows. However, industry sources speculate it could ultimately downsize fed-cattle prices by $3 to $4/cwt.

Whether that will happen, and whether it will affect feeder-cattle and calf prices, are big unknowns. The legislation is, however, affecting the price of Mexican and Canadian cattle coming into the U.S.

Earlier, Tyson indicated it would pay $60/head less for Mexican cattle fed in U.S. feedlots, which put a scare into the border market. Some 2,000 Mexican steers and spayed heifers crossed at the Santa Teresa, NM pens the last few days of October. The 300-lb. steers brought $1 to $1.05/cwt and the 3-weight spayed heifers brought 80¢. That same week, 3-4 weight steers at Oklahoma City returned $1.19 to $1.22 and 3-4 weight heifers brought $98 to $1.14.

Those discounts are prompting Mexican cattlemen to rumble about retaliation, saying their response to the drop in the value of their calves will be to stop the flow of U.S. beef to Mexico, currently the No.-1 export market for U.S. beef. Canadian cattlemen are contemplating action under NAFTA. One U.S. cattle feeder, Cody Easterday of Easterday Ranches at Pasco, WA, has sued USDA over the program, claiming commercial buyers are paying as much as $30/head less for Canadian and Mexican cattle, while there is no premium for U.S. cattle.

In spite of all the uncertainty, COOL is upon us and retailers will stay in compliance, sources tell BEEF. “We’re not hearing any outcry (from consumers) for it at the retail level,” sources say. “It hasn’t increased sales. Has it cost sales? I haven’t talked to anybody (who says) it drove (consumers) away from protein. But it may have driven them from one end of the meat case to the other. We’re happy that the penalties for failure are less now than they were originally. But we’re not happy with the prospect that this will be a profit opportunity.”